At an investor seminar in Sydney, mining giant Rio Tinto Limited (ASX: RIO) has warned of a troubled near-term outlook.
Despite increasing thermal coal reserves at its Hunter Valley operations in New South Wales by 546 million tonnes, investors were reminded of the tough outlook facing the resources sector as a whole.
CEO Sam Walsh said: "We are transforming our business into a more streamlined, accountable organisation by delivering on our promises… While the long-term outlook remains sound, the near term is undoubtedly more challenging."
So far in 2014 the price of iron ore – which accounts for over 90% of Rio's profits – has fallen 50%. Indeed, whilst Rio maintains the lowest breakeven price in the world and is unlikely to go out of business anytime soon, the price fall is taking a toll on the miner.
Mr Walsh said: "Our commitment to our shareholders is to deliver sustainable cash returns to shareholders through the cycle." However, this is notably different from his previous statements which included, "materially increased returns to shareholders."
The company stated it will be pushing ahead with its flagship Pilbara 360 expansion project. However capital expenditure (capex) and operating costs are expected to experience a notable reduction throughout the next year.
Buy, Hold, or Sell?
The near term for Rio Tinto isn't looking good, with the price of its most valuable commodity falling hard. Whilst it's unlikely to go broke (it has a breakeven price in the low $US40s per tonne), its shares are probably best kept out of your portfolio for now.
